In the past 10 years we've helped thousands of clients, and learned that very sophisticated, very smart people are fairly ignorant about how the tax code really works. For good reason; there is no training on the tax code for the average taxpayer.
Here's one thing we have learned: a tax return doesn't mean all that much. It's just a bunch of numbers that somebody plugs in. Looking at someone's tax return isn't going to provide you with any special clairvoyance into their life.
It has become customary for presidential candidates to release their tax return information for public scrutiny. As if it is somehow the public's right…and as if a tax return will tell you something important. So here are five reasons why I think a presidential candidate should not release their tax returns:
1. The tax returns you see are not necessary what is filed.
If you look at returns released by presidential candidates, you find a lot of them are unsigned. Even if they were signed, how do you know they were actually filed with the IRS? The answer is – you don't know. If someone was trying to create a false image of their affairs, do you see how easy it would be? The point of looking at someones' tax return is to see if they are up to no good. If they are up to no good, it would be ridiculously easy for them to hide it! It would be like asking a presidential candidate to score their own lie detector test.
2. Even if they were filed, did you see if they amended returns?
Let's suppose that you actually saw the real returns that were filed as-is. Do you know if a tax amendment was made later that day? You really have no clue what was filed or changed. You just think you know, and that's perhaps even more dangerous.
3. Do you know what any of this means?
Let's suppose you are a tax expert; smarter than any other CPA, enrolled agent or tax attorney. That you are the best in the business at discovering fraud. In reviewing the returns you still wouldn't know anything important. You have no idea where the numbers put on that tax return came from.
For instance, "consulting" is a rather vague term (also a very popular term used on many presidential and candidate returns). Then there's the "speaking fees" income that the Clinton's claimed. But were those fees really for speaking, or were they for something else? Of course, the person paying the bill would not claim it is a bribe, because bribes are not tax deductible. But speaking fees are. So you can have accurate numbers, but parties can have a self-interest to work in collusion to obfuscate the true nature of a payment.
4.What about partnership returns ? Corporate returns?
Let's say that I was going to do something shady, but I didn't want to run the risk of a tax evasion indictment. I would set up a shell company to run the books through; something without my name or social security number tied to it. Hence it wouldn't be on my tax return.
For their tax returns partnerships file IRS Form 1065, corporations files a Form 1120 or 1120-S. If someone has foreign entities like a foreign trust, foreign partnership or foreign corporation those could require Forms 3520-A/3520, Form 8865 and Form 5471, respectively.
Yet in all of the tax returns released by presidential candidates that we reviewed, wouldn't you know it…we found no partnerships, trusts, or corporation returns of any kind. Huh.
5. The Security Risks
Your Federal Adjusted Gross Income (AGI) is something that is used for Identity verification. Why would you ever want that to be public? It is dangerous to share that information. Also, the IRS has warned about many phishing scams involving tax professionals. It's just not a good idea to let people know who prepares your returns. You are opening yourself, and others, to scammers who may use this information to help them pose as the IRS.
"Look at me…I'm an every man! I pay my taxes! Just. Like. You."
Seriously, what is the point of releasing tax returns? To prove that you are just a regular guy or girl? Well, you are running for president of the most powerful nation of all time. You aren't an every man. So just stop it.
If we are looking at tax returns as indication of fraud that should disqualify someone from office, we are only exposing our own ignorance of what a tax return does.
The best lies contain truth. Anyone could release things that are true, yet easily hide the things that are not so helpful to an image of moral uprightedness. A partial release of tax information can assist a fraudster to appear to be on the up-and-up while leaving out what is actually important.
Let's stop this stupid practice. Keep your returns private.
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